US Bank Regulator Opens Door to National License for Bitcoin Firms

The acting comptroller of the currency for the U.S. Treasury Department has said he is open to the idea that a new breed of banks might one day conduct business in bitcoin and other cryptocurrencies.

Speaking at an event hosted by the Federal Reserve Bank of Philadelphia Thursday, Keith Noreika, the newly named director of the agency tasked with supervising all national banks, went so far as to state publicly that he foresees a future in which bitcoin companies might be granted “fintech charters” – proposed licenses designed to simplify the way startups do businesses across state borders.

Currently, bitcoin companies and traditional money transmitters need to comply with a complicated network of regulatory regimes in all 50 U.S. states, a pain point that industry advocates have argued severely limits startup growth by increasing the cost of market entrance.

But despite being open to crypto businesses applying for charters, Noreika went on to strike a cautious note on their chances of being approved.

He told attendees:

“I wouldn’t be adverse to those people coming in and talking to the [Office of the Comptroller of the Currency] about how a charter could make sense for them. But that is a long process they’d have to go through, and just because you get in the door doesn’t mean you’re going to get out the door on the other side.”

A long-time lawyer with a history of working in banking, Noreika was appointed acting comptroller by President Donald Trump in May of this year. In the transition, he inherited the fintech charter proposal from his predecessor, Thomas J. Curry, who last year revealed plans to create a single federal option to act as a kind of substitute for state-by-state money transmitter licenses.

Perhaps appropriately, the Office of the Comptroller of the Currency was created in 1863 to help subjugate the state currencies that were then taking root, and to create a national currency in their place.

Mindful of the Federal Reserve’s present duties to oversee U.S. currency, Noreika spoke passionately about his willingness to hear innovative ideas, and help create an environment in which they can flourish.

He said:

“I don’t think it’s my position as a government official to ever say ‘no’ to anything, or any idea, of any American who wants to come in and petition the government for a benefit from the government.”

Cautious optimism

Overall, Noreika’s comments came after hours of discussion in which panels were devoid of any mention of cryptocurrency or blockchain technology. But that would all change immediately after his talk, when the results of three research papers on the subject were presented.

Sharing Noreika’s cautious optimism was Evangelos Benos, a senior economist at the Bank of England, the U.K.’s central bank, who discussed his paper published last month entitled, “The economics of distributed ledger technology for securities settlement.”

During his address, Benos recounted what he argued are the benefits of how securities settlement platforms could utilize distributed ledgers. In summary, he stated that while the initial costs to bring the concept to life might be high, the potential scale of the platforms created could be massive.

“Their cost-functions are likely very small, or potentially zero,” he said, adding:

“Which means that their average costs are going to be declining. Which I think is an important point, because it suggests that potentially, there’s no economic limits to the size of this security settlement network.”

‘Hot potato’

But not everyone was so optimistic. One particularly bearish analysis of bitcoin came from a representative of the Federal Reserve itself.

The author of “The Law of One Bitcoin Price,” published earlier this year,Asani Sarkar, an assistant vice president of research and statistics at the Federal Reserve Bank of New York,  recounted data that he said successfully shows the limitations of cryptocurrency.

Specifically, he argued that, while exchanging one cryptocurrency for another is simple and quick, moving these assets to fiat and back creates drag and risk in the economy. As a result, Sarkar said that some banks that formerly banked cryptocurrency companies have stopped doing so.

He concluded that in order to stay connected to the traditional economy, cryptocurrency companies have to accept the need to move from bank to bank:

“What bitcoin exchanges have started doing is playing this game of hot potato.”

Federal Reserve image via Shutterstock